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2018 DIGILAW 1024 (JHR)

Raj Shekhar v. Govind Lal Sahu

2018-05-08

SHREE CHANDRASHEKHAR

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JUDGMENT Shree Chandrashekhar, J. - Photo copy of the plaint in Title Suit No. 93 of 2007 is taken on record. 2. Petitioner is aggrieved of order dated 28.09.2007 passed in Title Suit No. 93 of 2007 by which application under section 8 of the Arbitration and Conciliation Act, 1996 for referring the dispute for arbitration has been declined. 3. Contending that the trial Judge on an erroneous assumption in law that the arbitration clause in the development agreement would not subsist if the development agreement is held bad has dismissed the application under Section 8, Mr. Siddharth Roy, the learned counsel for the petitioner, submits that mere allegation of fraud in the plaint is not sufficient to refuse the application under section 8 of the Arbitration and Conciliation Act, 1996. It is contended that the allegation of fraud, which is an after-thought which would become apparent on a reading of the legal notice dated 11.09.2006 in which no such allegation has been made by the plaintiffs, may very well be adjudicated by the Arbitral Tribunal and while so, merely observing that there is an allegation of fraud in the plaint the application under section 8 of the Arbitration and Conciliation Act, 1996 cannot be refused. The learned counsel for the petitioner has relied on the following judgments; (i) " A. Ayyasamy v. Paramasivam and Others" reported in AIR 2016 SC 4675 , (ii) " Booz Allen and Hamilton Inc v. SBI Home Finance Ltd. and Others" reported in AIR 2011 SC 2507 , (iii) " Hindustan Petroleum Corpn. Ltd. v. M/s. Pinkcity Midway Petroleums" reported in AIR 2003 SC 2881 , (iv) " Rashtriya Ispat Nigam Ltd. and Another v. M/s. Verma Transport Company" reported in AIR 2006 SC 2800 and (v) " P. Anand Gajapathi Raju and Others v. P. V. G. Raju (died) and Others" reported in AIR 2000 SC 1886 . 4. As against the above, referring to the plaint averments and proceeding in Title Suit No. 93 of 2007 which would indicate that the defendants were permitted to file written statement on a concession from the plaintiffs and they intended to contest the suit on merits, Mrs. 4. As against the above, referring to the plaint averments and proceeding in Title Suit No. 93 of 2007 which would indicate that the defendants were permitted to file written statement on a concession from the plaintiffs and they intended to contest the suit on merits, Mrs. Abha Verma, the learned counsel for the respondents, submits that the allegation of fraud played by the defendants in getting the development agreement executed on 25.02.2005 goes to the root of the matter and the dispute between the parties is such that it cannot be adjudicated by the Arbitral Tribunal. 5. The issue involved in this case is whether the allegation of fraud as pleaded by the plaintiff would denude the Arbitral Tribunal of its jurisdiction under the arbitration clause to arbitrate the dispute between the parties and whether the application under section 8 of the Arbitration and Conciliation Act, 1996 was maintainable. 6. Law on the subject since " Abdul Kadir Shamsuddin Bubere v. Madhav Prabhakar Oak and Another" reported in AIR 1962 SC 406 , in which serious allegation of fraud was held by the Court a sufficient ground for not referring the dispute to arbitration in an application under section 8 of the Arbitration Act, 1940, has developed over the years and now it is well-settled that certain disputes, such as; (i) disputes relating to rights and liabilities which give rise to or arise out of criminal offences, (ii) matrimonial disputes relating to divorce, judicial separation, restitution of conjugal rights and child custody, (iii) matters of guardianship, (iv) insolvency and winding up, (v) testamentary matters, such as the grant of probate, letters of administration and succession certificates, and (vi) Eviction or tenancy matters governed by special statutes where a tenant enjoys special protection against eviction and specific courts are conferred with the exclusive jurisdiction to deal with the dispute, are not arbitrable. 7. In A. Ayyasamay, the Supreme Court has observed that as a matter of first principle the Court has not held that a mere allegation of fraud will exclude arbitrability. 7. In A. Ayyasamay, the Supreme Court has observed that as a matter of first principle the Court has not held that a mere allegation of fraud will exclude arbitrability. It has been held that in those cases, where the Court finds that the allegations of fraud are so complicated that it becomes necessary that such complex issues are decided by the civil court or where fraud is alleged against the arbitration provision itself or is of such a nature that permeates the entire contract, the dispute between the parties cannot be referred to arbitration. Another example is the cases where there is allegation that the contract itself is vitiated on account of fraud played by other party to the contract. The judgment in A. Ayyasamy does not overrule decision of the Supreme Court in " N. Radhakrishnan v. Maestro Engineers and Others" reported in (2010) 1 SCC 72 . By this judgment the Supreme Court has clarified that mere allegation of fraud is not sufficient to oust jurisdiction of the arbitrator, an issue which was not raised in N. Radhakrishnan. It has been held by the Supreme Court ; "13. When the case involves serious allegations of fraud, the dicta contained in the aforesaid judgments would be understandable. However, at the same time, mere allegation of fraud in the pleadings by one party against the other cannot be a ground to hold that the matter is incapable of settlement by arbitration and should be decided by the civil court. The allegations of fraud should be such that not only these allegations are serious that in normal course these may even constitute criminal offence, they are also complex in nature and the decision on these issues demand extensive evidence for which civil court should appear to be more appropriate forum than the Arbitral Tribunal. Otherwise, it may become a convenient mode of avoiding the process of arbitration by simply using the device of making allegations of fraud and pleading that issue of fraud needs to be decided by the civil court. The judgment in N. Radhakrishnan (AIR 2010 SC (Supp) 307) does not touch upon this aspect and said decision is rendered after finding that allegations of fraud were of serious nature." 8. Petitioner is the defendant no.1 in Title Suit No. 93 of 2007 and the plaintiff nos. The judgment in N. Radhakrishnan (AIR 2010 SC (Supp) 307) does not touch upon this aspect and said decision is rendered after finding that allegations of fraud were of serious nature." 8. Petitioner is the defendant no.1 in Title Suit No. 93 of 2007 and the plaintiff nos. 2 and 3 are the constituted agent and attorney for the plaintiff no.1. The suit was instituted by Govind Lal Sahu, Dr. Nand Lal Sahu and Madan Lal Sahu, all sons of late Siyaram Lakhan Sahu for a decree for declaration that the development agreement for the suit schedule property was fraudulently got executed by the defendant no. 1 by obtaining signature of plaintiff nos. 2 and 3 and for a declaration that the said development agreement has been validly cancelled through legal notice dated 11.09.2006. The plaintiffs have pleaded that on a representation of defendant no.1 they agreed to execute a development agreement in respect of the lands admeasuring about 13 kathas comprised under Municipal Survey Plot No. 211 which is part of Holding No. 3, Ward No. II (Old) in Ranchi Municipal Corporation. Besides 9 kathas 6 chhatak in M.S. Plot No. 239, the suit property was allotted to the plaintiffs'' father in the final decree prepared in Partition Suit No. 27 of 1960. After the death of their father in the year 1994 physical possession of the suit property and other lands was given to the plaintiffs in Execution Case No. 12 of 1999 and they have averred that they are in exclusive possession over the suit property since 07.11.2003. Alleging that signature on the development agreement, which was prepared in duplicate but not given to them, was fraudulently obtained on 25.02.2005, the plaintiffs have asserted that when they were given a copy of the said development agreement they found that the defendants have incorporated such terms in the development agreement which are different from what were agreed between the parties. The plaintiffs have pleaded that they have informed the defendants of cancellation of the development agreement through legal notice dated 11.09.2006 and the said cancellation was published in the newspaper on 13.09.2006. The plaintiffs have also submitted an application before RRDA on 16.09.2006 about cancellation of the development agreement dated 25.02.2005 and their claim on subsisting right, title and interest over the suit schedule property. The plaintiffs have also submitted an application before RRDA on 16.09.2006 about cancellation of the development agreement dated 25.02.2005 and their claim on subsisting right, title and interest over the suit schedule property. In the pending suit an application under section 8 of the Arbitration and Conciliation Act, 1996 was filed on 03.05.2007 by the defendants for referring the dispute between the parties to an Arbitral Tribunal in terms of the arbitration clause (at page16 of the development agreement dated 25.02.2005). This application has been dismissed. 9. The plaint averments in Title Suit No. 93 of 2007 would indicate that the plaintiffs have not only alleged fraud in execution of the development agreement dated 25.02.2005, a copy of which was initially not given to them, they have also pleaded that the understanding between the parties under which the defendants were under a duty to get the mutation and building plan sanctioned were also materially changed in the development agreement. It is pleaded that the plaintiff nos. 2 and 3, in good faith, believing the representation and assurance of defendant no.1 have signed the development agreement, and that the defendants have failed to perform their part as agreed between the parties. The plaint averments disclose a foundation for challenging the validity of development agreement on the ground of fraud and misrepresentation by the defendants, more particularly defendant no.1. In paragraph no. 27 of the plaint the plaintiffs have disclosed cause of action for instituting the suit, as under : "27. That the cause of action of the suit arose within the jurisdiction of this court in the second week of February 2005 when the defendant no.1 approached the plaintiff nos. 2 and 3 and offer to develop the suit property as a multi storied commercial building complex, on several dates thereafter when defendant no.1 during negotiations assured that he will complete the development project within 18 months and will persue and get orders passed on the plaintiffs'' pending application for mutation, on 25.02.2005 when defendant no. 1 obtained signatures of plaintiff nos. 2 and 3 on two copies of development agreement typed on stamp papers and such signatures were obtained by not allowing plaintiff nos. 2 and 3 to read the documents and by assuring that the terms and conditions agreed by the parties during negotiations have been correctly incorporated though in fact by practicing fraud defendant no. 2 and 3 on two copies of development agreement typed on stamp papers and such signatures were obtained by not allowing plaintiff nos. 2 and 3 to read the documents and by assuring that the terms and conditions agreed by the parties during negotiations have been correctly incorporated though in fact by practicing fraud defendant no. 1 had made fraudulent changes regarding computation of the time from which the period of 18 months for completion of the project was to be calculated and by also making fraudulent incorporation of grace period and responsibility of mutation on plaintiffs, on 08.03.2005 when a copy of development agreement was handed over to plaintiff nos. 2 and 3, on several dates thereafter when inspite of demands, defendants neither prepared building plan nor furnished information regarding mutation order already passed by the revenue authorities, on 11.09.2006 when by legal notice the development agreement dated 25.02.2005 was cancelled by the plaintiffs, on 13.09.2006 when the news paper notice was published in daily news paper Hindustan, on 16.09.2006 when information of cancellation of development agreement was intimated to RRDA, on 11.02.2007 when defendant no. 1 tried to take forcible possession of the suit property, on 21.02.2007 when a restraint order under section 144 of Cr.P.C., 1973 was passed against the defendants and on several dates thereafter when inspite of restraint order defendants were adamant to take forcible possession of the suit property and the cause of action is still subsisting. " 10. During pendency of the suit the defendants did not appear and in the first instance they were debarred from filing written statement. The trial Judge in the impugned order dated 28.09.2007 has recorded that though the application under Section 8 was filed on 03.05.2007, it was not pressed by the defendants and only on 30.07.2007 they filed written statement. The suit proceeded ex-parte and the said order was recalled with consent of the plaintiffs on 11.09.2007. It was only on 13.09.2007 when the suit was fixed for hearing under Order 10, Rule 1, 2, and 3 C.P.C, application under section 8 of the Arbitration and Conciliation Act, 1996 was pressed by the defendants. Leaving aside the aforesaid aspect, I find that the issue raised in the present proceeding has now been conclusively decided by decision of the Supreme Court in " A. Ayyasamy v. Paramasivam and Others" reported in AIR 2016 SC 4675 . Leaving aside the aforesaid aspect, I find that the issue raised in the present proceeding has now been conclusively decided by decision of the Supreme Court in " A. Ayyasamy v. Paramasivam and Others" reported in AIR 2016 SC 4675 . On a bare reading of the plaint averments in Title Suit No. 93 of 2007 it becomes apparent that it is not merely a bald allegation of fraud which is pleaded by the plaintiffs rather, there are serious allegations in different paragraphs of the plaint touching upon very foundation of the development agreement. Allegations in paragraph nos.13, 14 and 15 of the plaint are not simple allegations of fraud and misrepresentation which can be adjudicated by the Arbitral Tribunal. 11. There is another aspect of the matter which is weighing heavily against the petitioner. The development agreement contains an arbitration clause which is reproduced below : "That if any dispute or differences arise out of these presents and/or any interpretation of the terms and conditions of these presents, then the same shall be referred by the OWNER''S and another by the Developer. The Arbitrators so appointed may jointly nominate a third arbitrator and they jointly act as arbitral committee and their decision shall be final and binding on the parties. The Provisions of the Arbitration and Conciliation Act, 1966 (Act No. XXVI of 1996) shall be applicable to such arbitration proceeding. " 12. A bare reading of the arbitration clause in development agreement dated 25.02.2005 would disclose that a dispute or difference arising out of the development agreement and interpretation of the term and conditions of the development agreement can be referred to the Arbitral Tribunal. Plea that the development agreement dated 25.02.2005 has been got executed by playing fraud is not a dispute arising out of the development agreement dated 25.02.2005 and it also cannot be said that the plea of fraud as set up by the plaintiff involves any interpretation of the term and conditions under the development agreement dated 25.02.2005. Contention that the plaint averments in Title Suit No. 93 of 2007 are after-thought is not a ground on which the application under section 8 of the Arbitration and Conciliation Act, 1996 can be allowed. Contention that the plaint averments in Title Suit No. 93 of 2007 are after-thought is not a ground on which the application under section 8 of the Arbitration and Conciliation Act, 1996 can be allowed. May be there is no specific allegation of fraud and misrepresentation in the legal notice dated 11.09.2006, the plea sought to be raised by the petitioner in the application under section 8 of the Arbitration and Conciliation Act, 1996 can only be raised during the trial of Title Suit No. 93 of 2007. 13. In the above facts and considering law on the subject, it is not enough that the trial Judge has recorded a wrong reason while dismissing the application under section 8 of the Arbitration and Conciliation Act, 1996. On merits once it is found that the ultimate decision in the matter was correct, the High Court would not interfere with an otherwise not so perfect order. 14. Considering the facts pleaded by the parties, I am not inclined to interfere with the impugned order dated 28.09.2007 and accordingly, the writ petition is dismissed. 15. I.A No. 259 of 2008 for stay stands dismissed. 16. Interim order dated 29.07.2008 stands vacated. 17. Let a copy of the order be transmitted to the trial court through FAX.